U.K., Spain Lead Renewables-Investment Index; Policy
Confidence "Would Rocket U.S. to Top"
The United Kingdom and Spain continue their reign as the two most attractive
national environments for renewable-energy investment, according to the latest
quarterly Ernst & Young Renewable Energy
Country Attractiveness Index . The two countries have jostled for position
in the top four since the Index was launched in February 2003. However, both
countries have experienced a downgrading in recent months due to adverse market
conditions. The United Kingdom in particular could start to slide down the
rankings if development momentum does not soon pick up both in on and offshore
wind.
While development may be slowing up in the more mature renewable-energy markets,
there is plenty of investment potential elsewhere, according to Jonathan Johns,
Ernst & Young’s head of global renewable energy. "It may not be long
before the new markets steal the renewable-energy industry limelight from the
likes of the U.K. and Germany," he warns. "The market should continue
to watch this space where Canada, China and India are concerned."
China is rapidly moving towards becoming a major renewable-energy market,
according to the report, as government-support mechanisms take effect and
manufacturers set up local plants in anticipation of the county’s huge market
potential. While Canada’s policy environment is improving and large
investments are being made, India has had a record development year and is now
the world’s fifth largest market in terms of installed wind capacity.
Investment in offshore projects has, so far, failed to take off on the scale
that had been predicted and this could spell bad news for the United Kingdom,
according to Ernst & Young. The majority of offshore wind development
to-date has taken place on the balance sheets of the large power sector players
but as the scale and number of offshore projects start to increase, sponsors
will be looking to project finance to raise capital and transfer risk.
"The banks’ appetite for offshore wind has grown over the last few years
and the key question is no longer if they will lend to offshore wind, but
how," Johns said. "They are ready to put their money on the table for
the right offshore wind investment, but projects must be properly structured
with risk mitigation strategies in place."
There are further investment opportunities available to the UK renewables
market, since the recent surge in European Emissions Trading Scheme (ETS) carbon
prices. Johns says, "The U.K. government has indicated that the power
sector will carry the burden of any decrease in its EU emissions
allowances," Johns said. "Which means that high carbon process could
drive large energy companies’ interest in renewable-energy project development
and acquisition."
The United States is another outside threat to the United Kingdom’s position
at the top of the table. It has retained third this quarter, despite development
rates taking off under the renewed Production Tax Credit (PTC). But industry
confidence in the scheme remains low and the boom-bust development cycle looks
set to continue, according to Ernst & Young.
However, the United States still has huge resource potential and low development
costs, according to Johns, and if policy confidence could be established, it
would rocket the United States to the top of the tables for renewable-energy
investment attractiveness.
(Source: Ernst & Young news release, 4/18/05)